Marketing Discussions From Students at the Girard School of Business, Merrimack College

New products are one of the most important drivers of organic growth for a company. But unfortunately, new product development is also one of the biggest challenges for today’s organizations. Most companies are struggling today to bring new products to market on time and on budget. As per the 2004 Best Practices Study by the Product Development & Management Association (PDMA), the failure rate for new products ranges from 36% for healthcare to 45% for fast moving consumer goods.

New Product Failure Rate by Industry

So why is the new product failure rate so high?

A Harvard Business Review article by Stefan Thomke and Donald Reinertsen examines common misconceptions of product development that are instrumental in such low success rates for new products.

As per the research, the first myth is that high utilization of resources will improve performance. The article refers to surveys conducted in executive courses at the California Institute of Technology that found that the average product-development manager keeps capacity utilization above 98%. This actually becomes counterproductive. First, high utilization of resources inevitably creates queues of projects. When partially completed work sits idle, waiting for capacity to become available, the duration of the overall project will increase. Second, queues also delay feedback, causing developers to follow unproductive paths longer. This makes it hard for companies to adjust to changing market needs and to detect weaknesses in the product before it’s too late. Successful companies have understood this. For example, 3M only resources up to 85% and Google has 20% time which employees can use on something they like to work on, which essentially means there is some buffer when needed.

Another common myth described in the article is that processing work in large batches improves the economics of the development process. Developers move towards using large batch sizes when developing new products, which actually delays product development. The reduction of batch sizes is a critical principle of lean manufacturing. Small batches allow manufacturers to slash work in process and accelerate feedback which, in turn, improves cycle times, quality, and efficiency. Small batches have even greater utility in product development, but few developers realize the power of this method. Some software companies that used to test large batches of code every 90 days are now testing much smaller batches several times a day. As per the research done by Thomke and Reinertsen on shrinking batch sizes, one software company improved the efficiency of its product testing by 220% and decreased defects by 33%.

Sticking to the development plan can also lead to poor results in product innovation. As per the article, sticking to the plan for successful product development is a myth, especially where new insights are generated daily and conditions are constantly changing. Also, customers’ needs can be hard to ascertain as it is not easy for customers to accurately specify their needs for solutions or products that don’t yet exist. Customers’ preferences can also shift abruptly during the course of a development project, as competitors introduce new offerings and new trends emerge.

Another myth is that the sooner the project is started, the sooner it will be finished. This leads companies to start more projects than they can pursue. A company that embarks on a project before it has the resources to move ahead will stumble slowly through the development process.

Thinking that the more features we put into a product, the more customers will like it is also a myth, as per the research article. Conventional wisdom used by product development teams seems to be that adding features creates value for customers and subtracting them destroys value. But this can also lead to a disgruntled customer. This is similar to when we feel frustrated with number of buttons on a TV remote. So deciding what to omit from a product is as important as figuring out what to include.

Lastly, thinking that we will be more successful if we get it right the first time is another myth of product development that leads to sub optimal results in product development. Many product-development projects fail to meet their objectives when managers’ demand that their teams get it right the first time. Requiring success on the first pass biases the teams toward the least-risky solutions, even if customers don’t consider them much of an improvement over what’s already available. Even worse, teams have little incentive to pursue innovative solutions to customers’ problems. So they end up with sub-optimal products. A tolerance for “getting it wrong the first time” can be the better strategy as long as people iterate rapidly and frequently and learn quickly from their failures.

The research article provides insight into common fallacies or pitfalls of new product development that companies ignore to their detriment. It illustrates, with examples, how some companies avoid these pitfalls and are able to have strategic advantage in the market space. With innovation being a challenge for businesses, avoiding these myths is a first step towards successful new product development.